Keeping substantial amounts of money in a Thai bank account? Better read this.

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Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Gaybutton »

Deposit protection slashed from THB5 million to THB1 million

by: The Nation

August 10, 2021

The Deposit Protection Agency (DPA) will cut back protection from THB5 million to THB1 million per depositor from Wednesday, the Bank of Thailand (BOT) said on Monday.

The move aims to reduce inequality and make room for the government to allocate budget for economic activities, BOT deputy governor Ronadol Numnonda said.

Ronadol confirmed that financial institutions were still able to grant deposit protection to up to 98 per cent of depositors.

He added that this move was in line with Section 53 of Deposit Protection Agency Act BE 2551 (2008).

"Currently, each depositor is granted deposit protection of up to THB5 million, but the protection will be reduced to a maximum of THB1 million per depositor from Wednesday, which is suitable for the current situation and in line with laws," he explained.

He said this move would encourage depositors and financial institutions to pay attention to risk management, reduce inequality and facilitate the government in allocating budget to support economic activities.

He said Thai financial institutions are in a strong position, which can be seen from the capital adequacy ratio of 20 per cent, higher than in other regional countries.

"They also have high liquidity to cope with volatility in the economy due to the Covid-19 crisis," he added.

https://www.nationthailand.com/business/40004465
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I hope Barry Kenyon is right:
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Thailand’s cut in bank deposit protection doesn’t mean a collapse is imminent

By Barry Kenyon

August 10, 2021

From August 11, the maximum deposit protection in individual Thai bank accounts is reduced from 5 million to one million baht, or about 22,000 British pounds. Inevitably, this has set off a wave of social media frenzy with foreign retirees and others alarmed that their cash deposits might disappear overnight or even that the whole of the Thai banking system is in danger of disintegration. Best to calm down.

The Deposit Protection Act of 2008 was introduced in the wake of the world financial crisis of that era. The amounts protected have been regularly reduced over the years until they reached five million baht. Then, in April 2020, the Thai Cabinet announced the one million limit would come into force in August 2021. But this still covers 98.03 percent of total depositors investing in 35 financial institutions, according to Kasikorn Research Center.

Comparisons have to be made with other countries. There is no common pattern. Cambodia has no regulatory deposit protection yet in force, whereas the Philippines guarantees most accounts for 500,000 peso or about 7,000 pounds. The UK mainland has an upper limit of 85,000 pounds, which falls to 50,000 pounds in the Isle of Man and the Channel Isles where most British expats have been forced in recent years to lodge their accounts. The EU protection limit is 100,000 euros.

As usual, the devil is in the detail. Refunds are not automatic in every case. As the online Moneyfacts reports, the Halifax and the Bank of Scotland in UK are under the same banking licence, so investors’ protection is limited to one account and not two. In Thailand, foreign currency accounts are not covered. In almost all countries, temporary surges in funds (such as receiving an inheritance or a bonus) will not count in the deposit protection scheme.

Bloomberg, the international business and media company, says that the economic ramifications of Covid are far from clear. But its list of most likely banking failures internationally doesn’t even mention Thailand – but does list the USA! Kasikorn Research Center reports that the main intention of the forthcoming depositor reduction in Thailand is to encourage fiscal responsibility in businesses and consumers alike. Even so, there is no denying that Thai banks are overly dependent on unpaid loans and repossessed properties whose notional value may be much higher than reality. Money and risk can never be separated.

According to the Economic Intelligence Center, linked to Siam Commercial Bank, banks registered with the Bank of Thailand have a liquidity coverage ratio of 195.14 percent, greater than the BOT’s requirement of 100 percent. It should be added that most very rich people in Thailand have most of their money in stocks, bonds and other types of investment. The returns are usually so much better.

The best advice for foreigners in Thailand who maintain millions of baht in Thai banks, a very small number of expats, is to spread their cash around more than one financial institution or even to make use of banks in other Asean countries. In reality, in any country, the government is the security for investors. If one bank goes bust, the central authority can bail it out as the UK did in the case of Northern Rock in 2008 which was saved by nationalization. If all banks go bust, your currency will be worthless in any case. Hello the Weimar Republic.

Some people in times of insecurity turn to gold. But the precious metal is notoriously volatile in price, is hard to move around and has untraceable origins and destinations. The brave might want to consider cryptocurrencies which, according to some gurus, will replace financial institutions sooner than you think. So if you are clear about blockchains, decentralization, digital deposits and software wallets give them a whirl. But don’t expect Thai immigration to accept bitcoins any time soon.

https://www.pattayamail.com/latestnews/ ... ent-367181

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Jun »

Barry Kenyon wrote:
Tue Aug 10, 2021 6:16 pm
The best advice for foreigners in Thailand who maintain millions of baht in Thai banks, a very small number of expats, is to spread their cash around more than one financial institution or even to make use of banks in other Asean countries.
That's the best piece of advice in the article.

If I've been paying attention here, many expats need to keep 800k of dead money in a bank account to satisfy their visa criteria ? So only an extra 200k and you're past the deposit protection limit.
200k is not much to have as your only liquid cash in local currency, so accounts with further banks seem sensible. AFTER reading the rules carefully.

Of course, if in future, a major bank suffers a run and there are fears of other banks suffering the same, I suspect the government would back down and rapidly increase the protection limit to avoid the economic problems from bank failures. I just wouldn't like to be relying on that.

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Gaybutton »

Jun wrote:
Tue Aug 10, 2021 8:25 pm
If I've been paying attention here, many expats need to keep 800k of dead money in a bank account to satisfy their visa criteria ? So only an extra 200k and you're past the deposit protection limit.
That seems to be the case. For expats it is simple to open accounts with as many different Thai banks as you wish since expats have long-stay visas.

However, the part that made it to my "I Don't Get It" list is the logic behind this. Example: An expat has 1,700,000 baht in a Thai bank account. Since now only one million baht is protected, the expat opens an account at a different bank and deposits the extra 700,000 baht into that new account. Now the million baht is protected and the 700,000 baht is also protected. The same amount of money as before is now protected.

What am I missing?

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Jun »

Gaybutton wrote:
Tue Aug 10, 2021 9:27 pm
What am I missing?
Nothing. This is as far as I know, common practice. Many European countries have a limit per bank, so have accounts at 2 truly independent banks and you have twice the protection.

I suspect governments or the bank protection scheme want to limit their exposure to one bank failing. If all banks are failing, governments have little choice but to bail them all out, even it it means cranking up the printing presses.

My understanding is that typically, if a bank fails, once the whole lot is liquidated and loans sold on etc, even without a protection scheme, depositors would typically get a good proportion of their money back anyway. Obviously some way short of 100%. Also, it depends on who else has their snouts in the trough.

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Gaybutton »

Jun wrote:
Tue Aug 10, 2021 11:38 pm
if a bank fails
Do you think the real reason Thailand is doing this is because any of the banks are on the verge of failing?

It just seems to me that for Thailand to suddenly come up with this, cutting protection by so much without any prior warning, something is expected to happen - and whatever it is, it won't be good news?

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Jun »

Gaybutton wrote:
Wed Aug 11, 2021 1:08 am
Do you think the real reason Thailand is doing this is because any of the banks are on the verge of failing?
It just seems to me that for Thailand to suddenly come up with this, cutting protection by so much without any prior warning, something is expected to happen - and whatever it is, it won't be good news?
I doubt it. If one of the banks were on the verge of failing, there would be some talk of it in the financial press.

Generally, I see positive reports (admittedly a few months ago): https://www.bangkokpost.com/business/20 ... et-quality

If you're with some obscure bank, google "credit ratings" or "solvency" for that bank. Not completely water tight, as the ratings agencies can be a little slow to react.

I'd still be looking to open accounts with as many banks as necessary to keep my money below the limit.

The timing seem sub optimal.
Here in the UK it's possible to open some bank accounts without leaving my home. Somehow I suspect a branch visit is still necessary in Thailand, complete with multiple signatures, stamps etc with a pile of paperwork. So who want's to do that in the middle of a covid wave ?

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Gaybutton »

Jun wrote:
Wed Aug 11, 2021 1:21 am
I suspect a branch visit is still necessary in Thailand, complete with multiple signatures, stamps etc with a pile of paperwork. So who want's to do that in the middle of a covid wave ?
That's right. But if that is necessary in order to protect my money, I would be the first in line, Covid risk or not.

I've noticed many bank branches are only letting a few customers at a time come in. The rest have to wait their turn outside. That usually happens at the end of the month and the first few days of the next month when the Thais lucky enough to still have a job get paid.

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by windwalker »

Gaybutton wrote:
Wed Aug 11, 2021 1:08 am
Jun wrote:
Tue Aug 10, 2021 11:38 pm
if a bank fails
Do you think the real reason Thailand is doing this is because any of the banks are on the verge of failing?

It just seems to me that for Thailand to suddenly come up with this, cutting protection by so much without any prior warning, something is expected to happen - and whatever it is, it won't be good news?
It is not suddenly and there was advance notice. The reduction was to become effective in 2012 but was amended. Here is an explanation:

https://www.thaiwebsites.com/deposits-insurance.asp

About Thai Banking Deposits Insurance
Apparently after the Asian economic crisis of 1997, bank deposits at Thai banks were fully insured.

A Deposit Protection Act was passed in early 2008 and implemented towards the end of that year. From then on only limited government insurance for deposits at Thai (private) banks is in effect.

Now the original proposal was as follows and initially was still quite generous :
A blanket guarantee of deposits in the starting year, Bt100 million per person per bank in the second year, Bt50 million in the third, Bt20 million in the fourth and Bt1 million in the fifth, which was supposed to start somewhere in the middle of 2012.
However, the original proposals got amended a few years later. We will forego these changes, but below are the latest data as decided by the Thai goverment in April 2016 :

Up to 10 August 2016 deposits were protected up to 25 million baht.
Thereafter, protection will be in place for 15 million baht in deposits between Aug 11, 2016 and Aug 10, 2018; for 10 million between Aug 11, 2018 and Aug 10, 2019; for 5 million between Aug 11, 2019 and Aug 10, 2020; and for 1 million by Aug 11, 2020.

LATEST : In April 2020, an official of the Deposit Protection Agency announced that the period of coverage for 5 million Thai Baht, was EXTENDED TO 10 AUGUST 2021 (an additional year). It was announced indeed b the Deposit Protection Agency on 4 August 2021, that from 11 August 2021 onwards only sums up to 1 million Thai Baht (per bank) will enjoy deposit insurance protection.

(a report by TMB Analytics in 2012 indicated that 80% of deposits would become unprotected at a max protection level of 1 million baht ; likely this still holds true at the moment)

To be on the safe side, customers will need to open bank accounts with different banks, if they want to have all or at least a substantial amount of their deposits covered. As from 11 August 2021, anything above 1 million Thai Baht (per bank) is not covered. So having more than that amount in a particular bank, will put the customer at risk.

This creates redundancy and inefficiency, inconvenience to customers, and larger overheads for banks (probably passed on to customers). A reduction in bank deposit insurance coverage also creates less trust in the banking system overall.

The law in its present form assumes that customers can make the right decisions, only depositing their money with banks that are solvent and reliable. However, this is a fallacy, since even well educated economists and experts in the field (as judged by the 2008 financial crisis) are not capable of adequately judging the solvency or good management of banks.

Figures provided by TMB Bank in March 2012 indicated that more money was flowing into the government banks. The Finance Ministry is the major shareholder of these banks, and would be liable to provide a blanket guarantee against bankruptcy. This includes banks such as the Government Housing Bank, and the Government Savings Bank. Branches are few and between, but can be found in Bangkok and around Thailand. These banks do not offer all the services provided by commercial banks. An exception may be Krung Thai Bank, which also has a subsidiary of the Bank of Thailand as its main shareholder (majority owner), is a large bank with many branches, and provides most common bank activities. Your money could be safer with any of the banks mentioned.

So one recommendation could be : deposit the bulk of your assets with government banks, and have a current account or savings account with a commercial bank for daily expenses.

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Re: Keeping substantial amounts of money in a Thai bank account? Better read this.

Post by Gaybutton »

windwalker wrote:
Thu Aug 12, 2021 5:47 am
Here is an explanation
Thank you very much. I never knew any of this. To tell the truth, all this time I had thought Thai banks don't protect our money at all.

Protecting one-million baht is protecting the equivalent of around US $30,000. To me, that doesn't seem like all that much protection. Even the 5-million baht doesn't seem like all that much protection.

And if a bank does fail, how do you go about claiming your money and receiving it? Imagine the mountains of forms and paperwork for that. Why do I think claiming your money would not be immediate, but in Thailand it would take months, maybe even a year or two?

I suppose this is a silly question, but is there such a thing as some sort of commercial insurance that could guarantee further protection? Of course, if such a thing exists, the next thing to worry about would be whether the insurance company goes bankrupt.

To even further demonstrate my ignorance, why would government banks be less likely to fail than commercial banks?

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Post by Jun »

windwalker wrote:
Thu Aug 12, 2021 5:47 am
The law in its present form assumes that customers can make the right decisions, only depositing their money with banks that are solvent and reliable. However, this is a fallacy, since even well educated economists and experts in the field (as judged by the 2008 financial crisis) are not capable of adequately judging the solvency or good management of banks.
A very good point.
windwalker wrote:
Thu Aug 12, 2021 5:47 am
Figures provided by TMB Bank in March 2012 indicated that more money was flowing into the government banks. The Finance Ministry is the major shareholder of these banks, and would be liable to provide a blanket guarantee against bankruptcy.
If a bank fails, the value of the shares usually goes to zero and the liquidators would certainly have to refund all money to customers and bond holders before shareholders get anything. However, in a limited liability company, shareholders are under no obligation to put any more money in to refund customers. Well, that's how it works in most of the world and I imagine Thailand is the same.
So whether the government wants to put more money in to a failed bank would be entirely at the discretion of the government of the day.
Gaybutton wrote:
Thu Aug 12, 2021 8:05 am
And if a bank does fail, how do you go about claiming your money and receiving it? Imagine the mountains of forms and paperwork for that. Why do I think claiming your money would not be immediate, but in Thailand it would take months, maybe even a year or two?
In the UK, the money is refunded automatically and it's supposed to be within a few days.
I have no idea about Thailand. The Deposit Protection Agency appears to explain some matters, but I didn't see this explained. https://www.dpa.or.th/en/site/index

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